INTRODUCTION

This is an autonomous international institution established under the convention on the settlement of investment dispute between states and nationals of other states with over 140 member states.

The primary purpose of ICSID is to provide facilities for conciliation and arbitration of international investment disputes.

ICSID convention is a multilateral treaty formulated by the executive directors of the international Bank for Reconstruction and Development (the World Bank). It was opened for signature on March 18, 1965 and entered into force on October 14, 1966. The convention was sought to remove major impediments to the free international flows of private investment posed by non-commercial risks and the absence of specialized international methods for investment dispute resolution.

ORGANISATIONAL STRUCTURE OF ICSID

It has a simple organizational structure consisting of an administrative council and a secretariat.

THE ADMINISTRATIVE COUNCIL

It is the governing body of ICSID. It is comprised of one representative of each of the ICSID contracting states. It convenes annually in conjunction with the joint World Bank/ international monetary fund annual meetings. All the representatives have equal voting powers. The president of the World Bank is the ex officio chairman of the ICSID administrative council and has no vote.

THE PRINCIPAL FUNCTIONS.

1. The election of the secretary general and the deputy secretary general.

2. The adoption of regulations and rules for the institution and conduct of ICSID proceedings.

3. The adoption of the ICSID budget.

4. The approval of the annual report on the operation of the ICSID.

THE SECRETARIAT

It consists of approximately 50 staff. It is led by the secretary-General who is also the legal representative, the registrar of ICSID proceedings and the principal officer of the centre. Meg Kinnear serves as Secretary-General assisted by Aurelia Antonietti, Javier Castro, Gonzalo Flores, Milanka Kastodinavo and Martin Polasek as team leaders.

FUNCTIONS

1. Offers institutional support for the initiation and conduct of ICSID proceedings.

2. Offers assistance in the constitution of conciliation commissions, arbitral tribunal and ad hoc committees and supporting their operations.

3. Administering the proceedings.

4. Financing of each case.

5. Provides the functioning of ICSID as an international institution and a center for publication of information and scholarship.

6. It maintains the ICSID panels of conciliators and of arbitrators to which each contracting state may designate for persons and the chairman of the Administrative Council may designate 10 persons.

The ICSID panels provide a source from which the parties to UCSID proceedings may select conciliators and arbitrators. Further, in the event the chairman of the admin council is called upon to appoint conciliators, arbitrators or ad hoc committee members in ICSID proceedings. His appointees must be drawn from the panels. The secretariats administrative costs are financed out of the World Bank’s budget. The cost of ICSID proceedings are borne by the disputing parties.

ICSID ARBITRATION

Has been defined as the process in which a disagreement between two or more parties is resolved by impartial individual/party.

ICSID provides an institutional framework that facilitates conciliation and arbitration. Actual settlement of disputes takes place mainly through arbitral tribunals constituted on an ad hoc basis for each dispute at hand.

ICSID Arbitration is not obligatory for states and other states merely because both states are parties to the convention. The last paragraph of the preamble to the ICSID Convention provides the following:

“Declaring that no contracting state shall by the mere fact of its ratification, acceptance or approval of this convention and without its consent be deemed to be under any obligation to submit any particular dispute to conciliation or arbitration,”

Rather, the Convention provides them with an option to agree on arbitration. Arbitration becomes binding only upon the written consent of the parties to the arbitration either in an investment agreement or otherwise.

ICSID convention intends to offer a compromise between a fixed set of rules and the benefits of institutional support on the other hand, and the flexibility and autonomy usually regarded as one of the advantages of arbitration.

The convention establishes the Centre endowed with separate international legal personality. However it is not the centre itself which engages in arbitration. Rather, the centre provides facilities for the arbitration of investment disputes.This institution facilitation duties includes:

Keeping lists of possible arbitrators.
Screening and registering arbitration requests.
Assisting in the constitution of arbitral tribunals and the conduct of proceedings.
Adopting rules and regulations.
Drafting model clauses for investment agreements.

ICSID arbitration ids designed to prevent a potential danger inherent in many arbitral systems such as the risk that one party having previously consented to arbitration obstructs the arbitration proceedings by its refusal to cooperate.

With this in mind, the Convention provides that consent once given shall not be unilaterally withdrawn (Art 25 Para. 1) and that arbitral tribunals have the exclusive competence to decide on their own jurisdiction (Art. 41 Para. 1); that awards are binding and enforceable (Arts. 53, 54) and may not be disregarded or challenged on the ground of nullity except under the Convention’s own annulment procedure (Art 52). The convention also attempts to foreclose unilateral attempts of obstruction during the proceedings. It specifically provides for the appointment of arbitrators by the centre incase a party fails to do so (Art 38) and generally assures that lack of cooperation by any party will not prevent continuation of the proceedings (Art 45).

Disputes that may be Settled through ICSID Arbitration

Not all investment disputes may be brought before ICSID arbitration panels. Access to ICSID arbitration depends on the fulfillment of the jurisdictional requirements provided for in Art 25 of the Convention. These requirements relate to both the nature of the dispute (ratione materiae) and to the parties of the dispute (ratione personae).

According to Art 25 of the Convention the subject matter jurisdiction of the centre is limited to legal disputes arising directly out of an investment. Its personal jurisdiction extends over contracting states (or any constituent subdivision or agency of a contracting state designated to the centre by that state) on the one hand, and nationals of another contracting state on the other hand.

These are objective jurisdictional requirements which cannot be replaced by an agreement by the parties. Even if parties to an investment agreement expressly gave their consent to ICSID arbitration, any arbitral panel would have to satisfy itself of the fact that the dispute directly arose from an investment, was of a legal nature and that both the home state of the investor and the host state of the investment were contracting parties of the ICSID Convention.

This limit to the jurisdiction of ICSID was one of the major reasons for creating the additional facility granting access to the Centre’s arbitration even in situations where the ICSID Convention’s objective jurisdictional requirements are not wholly met.

Advantages of ICSID Arbitration

To Investors

ICSID arbitration provides investors with direct access to a form of international dispute settlement.
Investors are not restricted to national courts in the host state.
Investors do not depend u[on the willingness of their home states to exercise diplomatic protection on their behalf.
The enforcement provisions of the ICSID Convention make it highly probable that a final ICSID award will be effectively enforceable.

To Host States

Legal security for investors attracts investment since it creates a favourable investment climate. The mere availability of an effective remedy and not necessarily its ultimate use is likely to be crucial in increasing the respect of investment rules.

Consent to ICSID arbitration excludes the “harassment” potential of diplomatic protection exercised by the home state of investors against host states.

Exclusivity of ICSID Arbitration

This exclusivity is provided for in Art 26 of the convention and it operates only once the parties have consented to the ICSID arbitration. With such consent, they lose their right to avail themselves to other international or national forums since they have consented to ICSID arbitration to the exclusion of any other remedy.

Attorney-General v. Mobil Oil NZ Ltd provides an example of a domestic court respecting the Centre’s exclusive right to determine its own jurisdiction. In this case the New Zealand government instituted parallel proceedings before its own domestic courts in order to obtain an interim injunction seeking to restrain Mobil Oil from continuing the proceedings before the ICSID. Basing its decision, inter alia, on Art 26 of the ICSID Convention, the New Zealand High Court stayed the proceedings until the ICSID tribunal had determined its jurisdiction in Mobil Oil v. New Zealand.

PROCEDURE OF ABITRATION

Request for arbitration

Any contracting party wishing to institute arbitration proceedings shall make a request to that effect in writing to the Secretary-General, who shall send a copy of the request to the other party.

The request outlines the facts and legal issues to be addressed, the identity of the parties and their consent to arbitration.

The Secretary General may register the request unless he is convinced that the center lacks jurisdiction.

Constitution of the Arbitral Tribunal

ICSID must be decided by independent and impartial tribunals. The arbitral tribunal is to be constituted immediately the request for arbitration is approved.

An arbitrator may be appointed by:

(a) A party by itself;

(b) Both parties jointly-for instance, as a sole arbitrator or as the third arbitrator

Provided for in Article 37(2) (b) of the Convention;

Constitution of the tribunal marks the beginning of the tribunal proceedings. The tribunal shall consist of either a sole arbitrator or an uneven number appointed by the parties to the dispute.

Where the parties do not agree upon the number of arbitrators and the method of their appointment, the Tribunal shall consist of three arbitrators, one arbitrator appointed by each party and the third, who shall be the president of the Tribunal, appointed by agreement of the parties.

ICSID maintains a list of individuals who may be named as arbitrators in ICSID proceedings known as the ICSID panel of arbitrators. Each member state may designate for arbitrators to the panel but parties may select any person they wish.

The tribunal must be constituted within 90 days after the notice of registration has been dispatched by the Secretary –General or any other time as the parties have agreed. If the Tribunal shall not have been constituted within 90 days after notice of registration of the request has been dispatched by the Secretary- General in accordance with paragraph (3) of Article 36, or such other period as the parties may agree, the Chairman shall, at the request of either party and after consulting both parties as far as possible, appoint the arbitrator or arbitrators not yet appointed. Arbitrators appointed by the Chairman pursuant to this Article shall not be nationals of the Contracting State party to the dispute.

After constitution of the tribunal the first session shall be held within 60 days of constitution. Here the preliminary questions of procedure are dealt with.

Powers and Functions of the tribunal

i. It shall be the judge of its own competence and it shall decide upon any question regarding the jurisdiction of the center .It shall also decide whether to deal with such as a preliminary question or to join it to the merits of the case

ii. To decide the disputes according to the rules of law agreed upon by the parties, the ICSID convention and arbitration rules.

iii. Call upon the production of documents and evidence, visit the scene and conduct enquiries as it deems necessary.

iv. Shall upon notice and expiration of the grace period given to a defaulting (in appearance) party render an award.

v. The Tribunal if requested by a party determine any incidental or additional claims or counterclaims arising directly out of the subject matter of the dispute, within the scope of the consent of the parties and jurisdiction of the centre

THE PROCEEDINGS

They are in two phases:

i. The Written Procedure.

It constitutes the request for arbitration and written pleadings. A memorial by the requesting party and a counter claim by the other party, if the parties so agree or the Tribunal deems it necessary: a reply by the requesting party and a rejoinder by the other party. A memorial shall contain:

· A statement of the relevant facts.

· A statement of law; and the submissions.

· A counter-memorial.

· Reply or rejoinder shall contain an admission or denial of the facts.

i Oral Procedure.

Consists of the hearing by the tribunal of the parties their agents, counsel and advocates and of witnesses and experts. Hearings take place in sittings conducted under the control of the President of the Tribunal. Unless where either party objects the Tribunal may allow other persons to attend or observe part of the hearings, however it is a matter of principle envisaged in Article 48(5) of the Convention that the proceedings are not public.

The hearing consist of an opening statement by or on behalf of the requesting party ,followed by a statement by or on behalf of the other party, followed, again, by a reply and a rejoinder. This may be concluding by written submissions.

Each member of the Tribunal may during the hearing put questions to the parties, their representative, advocates or seek for explanations

The tribunal shall decide a dispute in accordance with the rules of law agreed by the parties, in the absence of such it shall apply the law of the Contracting State party to the dispute (including its rules of conflict of laws) and such rules of International law as may be applicable.

Evidence in Arbitration

Oral evidence may be submitted by a party, this may follow its first statement and be followed by an examination of its witnesses. In examination of witnesses the Tribunal shall be guided by the principle that full and equal opportunity should be afforded to both parties and by any agreement between them

Proof of facts in dispute may also be done by the production of documents or other evidence, visiting the scene connected with the dispute and make necessary inquiries into the matter. The Tribunal shall be the judge of the admissibility of any evidence and its probative value. The tribunal shall also examine witnesses and admit evidence given by written disposition.

Closure of the proceedings

This is deemed to happen when the presentation of the case by parties is completed; however, it is without prejudice to the discretionary power of the Tribunal to re-open the proceedings on its own initiative or on motion of either party. This is on exceptional circumstances where the Tribunal may, before the award has been rendered, re-open the proceeding on the ground that new evidence is forthcoming of such a nature as to constitute a decisive factor, or that there is a vital need for clarification on certain specific points.[22]

Discontinuance of Proceedings

This will occur:

a. Where Parties agree on settlement of the dispute or otherwise to discontinue the proceedings.

b. At the request of a party and acquiescence by the other upon notice of the request. However where the other party objects to the discontinuance, the proceedings will proceed.

c. Where there is failure by the parties to take any steps in the proceedings for six consecutive months.

ICSID CONCILIATION

Conciliation is a process in which a neutral person meets with the parties to a dispute and explores how the dispute might be resolved; especially a relatively unstructured method of dispute resolution in which a third party facilitates communication between parties in an attempt to help them settle their differences

In ICSID, conciliation is dealt with in chapter III of the “Convention on the Settlement Of

Investment Disputes between States and Nationals of Other States”.

Contracting parties wishing to institute conciliation proceedings shall address that request in writing to the Secretary-General who shall send a copy of the request to the other party. That request should bear information on the issues in dispute, identity of parties to the dispute and the consent to conciliate in accordance with the rules of procedure for the institution of conciliation and arbitration proceedings.The Secretary-General shall, upon receipt, register such request unless s/he finds, on the basis of the information contained in the request, that the dispute is manifestly outside the jurisdiction of the Centre. In such a situation, s/he shall immediately notify the parties of registration or refusal to register.

The Conciliation Commission shall be constituted the soonest possible in the event that a request is registered.The Commission shall consist of a single conciliator or any uneven number of conciliators appointed as the parties shall agree. If the parties do not agree upon the number of conciliators and the method of their appointment, the Commission shall consist of three conciliators, one conciliator appointed by each party and the third, who shall be the president of the Commission, appointed by agreement of the parties.

Failure to constitute a commission within 90 days after notice of registration of the request has been dispatched by the Secretary-General, the Chairman shall, at the request of either party and after consulting both parties as far as possible, appoint the conciliator or conciliators.Conciliators may be appointed from outside the Panel of Conciliators, except in the case of appointments by the chairperson.

Conciliation Proceedings

The Commission shall have powers of kompetenz- kompetenz, that is, to judge on its own competence. Any objections by the parties as to the jurisdiction of the Centre, or for other reasons is not within the competence of the Commission, shall be considered by the Commission which shall determine whether to deal with it as a preliminary question or to join it to the merits of the dispute.

Commission has the duty to clarify the issues in dispute and to endeavor to bring about agreement between them upon mutually acceptable terms. To that end, the Commission may at any stage of the proceedings and from time to time recommend terms of settlement to the parties. The parties shall cooperate in good faith with the Commission in order to enable the Commission to carry out its functions, and shall give their most serious consideration to its recommendations.

The Commission shall draw a report if:

· reach agreement

· there is no likelihood of agreement between the parties

· If one party fails to appear or participate in the proceedings

Parties to conciliation shall not be entitled to present the outcome of conciliation proceedings before a court of law or any other dispute settlement mechanism, except as the parties shall agree.

DIPLOMATIC PROTECTION

Diplomatic protection is the traditional technique for settling international disputes originating from disagreements between states and private parties. In the past many expropriation and compensation claims, typical core aspects of investment disputes were settled by this method.

Its broad availability stems from the fact that diplomatic protection does not require any advance agreement between the disputing parties. It is in principle always within the jurisdiction of the home state of a natural or legal person to take up this private party’s claim and to make it the home state’s own against the state allegedly having harmed its national.

The only procedural conditions under the traditional customary international law are the continuous nationality of the injured private party and the exhaustion of local remedies.

International law conceives diplomatic protection as a right of the home state not of its national. This implies that investors are wholly dependent upon the willingness of their home states to espouse their claims. The willingness of home states on investors to espouse such claims will be influenced by various political considerations and thus, ultimately, remains unpredictable. Further, they always have the right to waive espoused claims as a whole or in part.

In the Barcelona Traction Case, the ICJ characterized diplomatic protection in the following words:

“…within the limits prescribed by international law, a state may exercise diplomatic protection by whatever means and to whatever extent it thinks fit, for it is its own right that the state is asserting. Should the natural or legal persons on whose behalf it is acting consider that their rights are not adequately protected, they have no remedy in International law, if means are available, with a view to furthering their cause or obtaining redress.

The state must be viewed as the sole judge to decide whether its protection will be granted, to what extent it is granted, and when it will cease. It retains in this respect a discretionary power the exercise of which may be determined by considerations of a political or other nature, unrelated to the particular case.”

In case of widespread expropriations, e.g. in case entire industrial sectors are nationalized, the home states of affected investors have frequently been content to conclude lump-sum agreements with the expropriating state by which they accept a portion of the total outstanding claims as a global settlement payment. Injured private parties have no entitlement under international law to receive the proceeds of such agreements from their home states. As a rule however, national legislation will provide for the proportionate distribution of the lump-sum payment to them.

States are relatively free in their choice of means when exercising diplomatic protection. They may avail themselves of any lawful, but unfriendly measures. They may also adopt certain otherwise wrongful measures as long as such measures may be justified as proportionate reprisals or countermeasures.

Today customary international law prohibition of the use of force clearly limits the range of available reprisals/ countermeasures. This principle has a prominent precursor in the 1907 Drago-Porter Convention which restricted the means available for the exercise of diplomatic protection on behalf of loan creditor’s vis-à-vis debtor states.

Parties to the ICSID Convention are not automatically prevented from exercising diplomatic protection over investment disputes involving their own nationals vis-à-vis other contracting parties. However, they are prevented from doing so in cases where the disputing parties have consented to or have actually started arbitration under the Convention.

Art 27 of the ICSID Convention provides:

1. No contracting state shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another contracting state shall have submitted to arbitration under this convention unless such other contracting state shall have failed to abide by and comply with the award rendered in such dispute.

2. Diplomatic protection, for the purposes of paragraph (1), shall not include informal diplomatic exchanges for the sole purpose of facilitating a settlement of the dispute.

Since consent to ICSID arbitration need not be expressed in a single instrument, but may also result from an investor accepting a host state’s offer contained in national investment legislation or in a BIT by instituting proceedings, a private party retains its option to ask for diplomatic protection even where it could already demand arbitration.

Further, even in situations covered by Art 27 of the ICSID Convention the right to exercise diplomatic protection will revive if the host fails to comply with an ICSID award.

ICSID ADDITIONAL FACILITY

Access to ICSID conciliation and arbitration not only depends on consent of the parties but also has to meet objective jurisdictional requirements, most important the requirement that both the host and home state of the investor must be contracting parties of the ICSID Convention. As a consequence, a number of investment or investment related disputes between investors and host states may not be brought before the centre even if both parties were willing to so.

This situation was remedied by adoption of the Additional Facility Rules in 1978. They specifically opened access to the Centre in a number of additional cases. These are laid down in Art 2 of the Additional Facility Rules and can be categorized in three groups:

1. Conciliation or arbitration of investment disputes where only side is either party to the ICSID Convention or a national of a party to the ICSID Convention.

2. Conciliation or arbitration of legal disputes which do not directly arise out of an investment provided that at least one side is either a party to the ICSID Convention or a national of a party to the ICSID Convention.

3. Fact-finding proceedings between a state and a national of another state.

Art 2 Para b of the Additional Facility Rules extends the ICSID Conventions limited subject jurisdiction over investment disputes to disputes not directly out of an investment. This provision is read with Art 4 Para 3 of the Rules which makes additional Facility dispute Settlement Conditional on the fact that the underlying transaction has features which distinguish it from an ordinary commercial. “The not directly arising out of an investment” phrase implies that a certain investment nexus remains a precondition for Additional Facility dispute settlement.

The centre follows a broader approach not even requiring an indirect link to an investment by only requiring the underlying transaction to be distinguishable from an ordinary commercial transaction.

So far only the first two group of cases, where either the host state or the home state of an investor is not a party to the ICSID Convention has been practically relevant. Additional Facility Arbitration has become very important in the context of NAFTA (North America Free Trade Agreement) since only the United States is a party to the ICSID while Canada and Mexico are not.

Art 1120 in NAFTA’s Chapter Eleven on Investments provides:

1. Except as provided in Annex 1120.1, and provided six months have elapsed since the events giving rise to a claim, a disputing investor may submit the claim to arbitration under:

a) The ICSID Convention provided both the disputing Party and the Party of the investor are parties to the Convention;

b) The Additional Facility Rules of ICSID, provided that either the disputing Party or the Party of the investor, but not both, is a party to the ICSID Convention; or

c) The UNCITRAL Arbitration Rules

2. The applicable arbitration rules shall govern the arbitration except to the extent modified by this section.

Further, Art 1122 provides in relevant part:

1. Each party consents to the submission of a claim to arbitration in accordance with the procedures set out in this Agreement.

2. The consent given by paragraph 1 and the submission by a disputing investor of a claim to arbitration shall satisfy the requirement of (a) Chapter II of the ICSID Convention (jurisdiction of the Centre) and the Additional Facility Rules for written consent of the parties;…

Since the US is a party to the ICSID Convention, additional facility arbitration is available between US and Canada and Mexico which are not parties to the Convention. However, in disputes between Mexico and Canada only UNCITRAL arbitration is available. As long as Canada and Mexico are not parties to the ICSID Convention, the NAFTA will not operate to confer jurisdiction under the Convention.

One of the NAFTA investment cases rendered under the Additional Facility is Metalclad v. Mexico which raised considerable concern among environmentalists. This Additional Facility award held that Mexico, through actions of a local municipality, had effectively expropriated a US investor which had previously obtained all required permits to operate a hazardous waste facility.

In a similar vein, the 1994Energy Charter Treaty between the European Communities and 49 mostly European States provides in its Art 26 consent to ICSID’s jurisdiction by the states parties in relation to investors of all other states parties. The treaty contains and unconditional consent to ICSID and to the Additional Facility, whichever may be available. The Art also requires consent also on the part of the investor. Apart from the ICSID convention or the Additional Facility, the investor is given the choice of the courts and administrative tribunals of the host state, previously agreed procedures, UNCITRAL arbitration and arbitration in the framework of the Arbitration institute of the Stockholm Chamber of Commerce.

Dispute settlement under the Additional Facility is not ICSID conciliation or arbitration but rather Additional Facility conciliation or Arbitration. This means that such proceedings maybe administered by the secretariat of the centre and thus benefit from the institutional support and expertise provided by the Centre. However, such additional Facility proceedings are by definition outside the jurisdiction of the centre, the ICSID Convention does not apply to proceedings, recommendations awards, or reports under the Additional Facility *(Art 3 Additional Facility Rules)

In order to secure effectiveness of such awards, Art 20 of the Additional Facility Rules provide that arbitral proceedings must be held only in states that are parties of the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) in Metalclad v. Mexico the Additional Facility arbitral tribunal determined the place of arbitration to be Vancouver, Canada in order to comply with the requirement which is expressed in Art 1130 NAFTA.

Additional Facility conciliation or arbitration maybe used as an alternative to dispute settlement before national courts, ad hoc arbitration, or diplomatic protection. It is not available, however, when the Centre has jurisdiction under Art 25 of the ICSID Convention.

AFRICA LAW CENTRE

DISPUTE RESOLUTION UNDER THE INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES (ICSID)